Zanele Zungu | Advisor | Citadel | mail me |
South African professionals facing sudden career transitions, such as resignation or retrenchment, find themselves at a critical financial crossroads.
The first 90 days after resignation or retrenchment can determine their long-term financial security. Although this period represents a high-risk financial window, it can also create valuable opportunities for recalibration and growth.
The first 90 days after resignation or retrenchment are especially important because they often involve emotional and circumstantial instability. Whether the exit was voluntary or involuntary, a person’s emotional state can strongly influence immediate financial behaviour. Consequently, the decisions made during this period can either rebuild financial security or trigger rapid and unintended financial instability.
How to achieve stronger long-term financial outcomes
There are three key considerations to keep in mind. Following them can help you avoid common mistakes and achieve stronger long-term financial outcomes.
Do not hold on to a past lifestyle
The most common mistake, and the easiest one to make, is maintaining the same lifestyle as before. This usually results from poor budgeting. If you fail to adjust your spending habits to match your new financial reality, you risk depleting your resources far too quickly. Once those resources are exhausted, you could become dependent on debt.
The immediate priority should be a comprehensive cash flow analysis combined with sound financial risk management. This includes assessing available liquidity, understanding current financial obligations and creating a realistic, disciplined budget.
During the first 90 days after resignation or retrenchment, it is essential to reduce discretionary spending and focus on preserving capital. Doing so will help available resources last as long as possible, particularly without a predictable income stream.
Avoid the risk of emotional spending
Periods of uncertainty often trigger fear-based or comfort-driven spending behaviours. Some individuals spend impulsively as a coping mechanism. Others make reactive financial decisions without fully considering the long-term implications. As a result, they often worsen an already fragile financial situation.
It is critical to achieve emotional stability before making major financial decisions. A disciplined and intentional approach to money management, based on logic rather than emotion, helps individuals maintain their quality of life more cost-effectively.
Protect your retirement capital
Retirement savings deserve discipline and respect because they exist for a specific purpose. You should preserve them wherever possible. Only withdraw what is absolutely necessary for survival as a last resort.
If you must withdraw funds, do so in a way that minimises both the tax implications and the long-term financial impact. It is also important to understand the difference between the tax treatment for retrenched individuals and those who voluntarily resign and access the savings pot of their retirement capital.
You may access your savings pot once each year after exhausting all other liquidity options. However, you should remember that SARS taxes this withdrawal at your marginal tax rate from the first Rand.
Resignation withdrawals are taxed according to the withdrawal lump sum tax tables, where a lifetime tax-free limit of R27,500 applies. By comparison, retrenched individuals may benefit from the retirement lump sum tax table, which offers a lifetime tax-free withdrawal limit of R550,000.
The risks associated with early access to retirement savings are immediate, long-term, and frequently underestimated.
Firstly, you permanently lose the benefits of compounding. By withdrawing funds early, you reduce your capital and eliminate its future growth potential. Secondly, early withdrawals often attract higher tax. Thirdly, there is a behavioural risk.
Once you normalise accessing retirement savings for short-term needs, repeating that behaviour becomes much easier. Lastly, you increase the risk of a retirement shortfall. In effect, you shift the financial burden onto your future self, who may need to contribute more, postpone retirement or accept a lower standard of living.
Stabilise before you strategise
Ultimately, the goal of the first 90 days is to create the mental and financial space needed to make informed decisions. When those decisions are grounded in wisdom and intention, they can become a powerful catalyst for financial growth.
For this reason, I advocate a “stabilise before you strategise” approach. I recommend focusing first on cash flow analysis with a trusted financial adviser. I also encourage people to secure important benefits, such as medical aid and insurance, before making long-term investment decisions.
A financial planning professional can assess your current financial position, identify potential risks, and develop an effective strategy to help you navigate this period. Do not make permanent financial decisions based on a temporary emotional state.
In conclusion
In many cases, the event itself does not cause long-term financial damage. Instead, the decisions people make in response to it create the greatest harm.
Rather than feeling discouraged, individuals should use this period to rebrand themselves, expand their professional networks, and pursue opportunities to apply their skills and experience in new ways.
This approach can position them for future opportunities. Much like financial markets, life moves in cycles. It does not remain in a downturn forever. With intention, discipline and a focus on what you can control, your circumstances will change.
